* Ease 8-69 Keep or Drop a Division an Shumard, president and general manager of Danbury Company, was concerned about th uture of one of the company's largest divisions. The division's most recent quarterly incom tatement follows: Sales $3.75 1,500 Less: Cost of goods sold 2,722,400 Gross prot $1,029,100 Less: Selling and administrative expenses 1,100,000 Operating (loss) $ $70,900 ) an is giving serious consideration to shutting down the division because this is the ninth con ecutive quarter that it has shown a loss. To help him in his decision, the following additions nformation has been gathered: o The division produces one product at a selling price of $ 100 to outside parties. The division sells 50% of its output to another division within the company for $83 per unit (full manufacturing cost plus 25%). The internal price is set by company policy. Ifthe division is shut down, the user division will buy the part externally for $100 per unit. 0 The xed overhead assigned per unit is $20. 0 There is no alternative use for the facilities if shut down. The facilities and equipment will be sold and the proceeds invested to produce an annuity of $100,000 per year. Of the xed selling and administrative expenses, 30% represent allocated expenses from corporate headquarters. Variable selling expenses are $5 per unit sold for units sold externally. These expenses are avoided for internal sales. No variable administrative expenses are incurred. .--l I: \"A